Retirement Insights -- What Retiring Minds Need to Know About Pensions

Pension fund trustees from across the country meet to share experiences and develop skills that will help them protect AFSCME members’ retirement money.

WASHINGTON, D.C.

Nearly 30 AFSCME members who serve as trustees or advisors to public employee pension plans met here in early December to learn new ways to protect these funds for beneficiaries.

The meeting kicked off a project —sponsored jointly by the International’s Retiree Department and Department of Research and Collective Bargaining Services — to inform members who serve in some capacity on public pension funds of trends and threats affecting the funds.

Pres. Gerald W. McEntee commended participants for “using union power to help gain more influence in pension systems,” thereby benefitting AFSCME members who are beneficiaries.

Pension fund trustees regularly fight efforts to cut benefit formulas, cost-of-living adjustments and retiree health insurance

DEFINING RISK. Many employers (both public and private) are trying to move workers from defined benefit to defined contribution plans, AFSCME International staff and outside experts told participants. The main differences between the two are who takes the risk and whether retirees are guaranteed a monthly check for life.

Under a defined benefit plan — the prevalent type in the public sector — employer and employee each contribute regularly into the fund, which is usually invested in securities. The retiring employee is guaranteed a lifetime pension based on salary and length of service. The employer bears all the risk, being obligated to pay the pension even if investments have not paid off.

Under defined contribution plans, which are growing rapidly in the private sector, employer and employee contribute to the funds, which are invested. But a pension is based on how well the funds’ investments perform. The employer’s costs are limited, and the employee bears all the risk. If the investments are good, the retiree will have a good pension. But if they’re not, the retiree may face very hard times.

AFSCME staff told participants that attempts to convert from defined benefit plans are growing. Last year Michigan imposed a defined contribution plan on new employees. Management tried to press current workers into the plan although the governor and his top aides remained in the defined benefit plan. Workers in Arizona, California, Illinois, Iowa, Kansas, Oregon, South Dakota and Vermont have been able to beat back the menace through lobbying and public education.

FUND RAIDING. The huge sums in public-sector pension plans — estimated at more than $1 trillion — have also been a temptation for public officials trying to maintain services or cut taxes.

In 1991, California pension fund actuaries appointed by former Gov. Pete Wilson (R) pronounced the plan overfunded. Wilson then tried to divert $1.9 billion for other uses. AFSCME successfully led efforts to amend the state constitution to stop his scheme and safeguard state workers’ future.

The conference also focused on the role of trustees. Attorney Ian Lanoff told participants that pension trustees’ primary role is to protect funds and ensure they are invested wisely for the best return. Lanoff stressed the importance of making “prudent” decisions based solely on the interest of the fund’s beneficiaries.

Lanoff urged trustees to fight efforts by pension fund administrators to keep them out of the decision-making process. “Make sure you’re in the driver’s seat,” he said.

International Sec.-Treas. Bill Lucy addressed the issue of investment activism. “Are we interested in instant profits?” Lucy asked rhetorically. “No. “We’re looking for long-term investments with stable growth.” Co-chair of the Council of Institutional Investors (CII), Lucy described efforts to make corporations more accountable to their stockholders. CII is pressuring corporations to appoint independent directors. Many corporations appoint directors with personal and professional connections to top management, creating potential conflict of interest.

By Susan Ellen Holleran

• AFSCME is developing a network of working and retired members who serve as pension fund trustees and advisors. To become part of that network, please call the International's Department of Research and Collective Bargaining Services at (202) 429-1215 or e-mail research@afscme.org.